Fintech Daily Digest

Russian banks, particularly smaller ones, are reportedly unhappy about the high cost (between 120 million and 200 million rubles) of integrating with the central bank's digital ruble platform. The Bank of Russia has mandated that the 13 systemically important banks must offer clients the ability to use the digital ruble starting July 1, 2025. Universal banks (around 208) are expected to follow suit on July 1, 2026, while banks with basic licenses will begin on July 1, 2027. Despite these reservations expressed by some banks, the Bank of Russia is proceeding with the established timeframes and has vowed to fine institutions that fail to abide by the set deadlines. https://www.kommersant.ru/doc/7249032

Ripple Labs has filed a Form C in the U.S. Court of Appeals for the Second Circuit, requesting a de novo review of a recent ruling by the U.S. District Court for the Southern District of New York, which imposed a $125 million fine on Ripple for institutional XRP sales, ruling that they constituted securities transactions. (U.S. District Judge Analisa Torres said that XRP in itself was not a security when issued to retail investors or when sold programmatically on digital asset exchanges.) A de novo review allows the appeals court to re-examine the legal interpretations made by the district court without deferring to its previous conclusions. Ripple's filing comes after the U.S. Securities and Exchange Commission (SEC) also filed Form C in a bid to reverse Judge Analisa Torres' summary judgment. The SEC's appeal, however, did not contest the ruling that XRP isn't a security for programmatic sales on digital asset exchanges. Instead, it sought a review of the court's application of securities law in institutional sales. https://x.com/s_alderoty/status/1849618428560064679

Looking to advance its cryptocurrency ambitions, payments processor Stripe has finalized a deal to buy stablecoin platform Bridge for $1.1 billion. Stripe, which enables companies to accept payments online or in-person, has this year been exploring extending its offering to cryptocurrency through Circle's USDC stablecoin. Bridge previously said it aspired to become the blockchain version of Stripe, operating a global system in which other developers could integrate.

Bank of Thailand (BOT) staff published a paper that analyzes end-to-end transaction data from the central bank's seven-month 2023 retail CBDC pilot. The pilot's three financial service providers (FSPs) appeared to engage in asymmetric behavior between issuance and redemption of CBDC. They generally front-loaded CBDC to absorb uncertainty of future demand and pursued an adaptive strategy to adjust the level of their CBDC reserve balance following retail transaction observed to minimize the opportunity cost of holding unremunerated CBDC. Retail users tend to use CBDC as a means of payment but not as story of value, managing their CBDC holdings to meet the demand for making payments to minimize the opportunity cost of holding CBDC.

The Bank of Ghana (BOG) published the results of its recent eCedi retail central bank digital currency (CBDC) pilot project. The pilot, which used Giesecke+Devrient's (G+D's) Filia CBDC platform , involved individuals and merchants of diverse demographic and socioeconomic backgrounds, using mobile applications, smart cards and point-of-sale (POS) terminals for four months. Offline functionality, using smartcards and Filia Connect devices, was successfully tested in a carefully chosen off-grid location, with person-to-business (P2B) being the primary focus. Post-pilot surveys indicated a strong possibility of all participants adopting the eCedi if it were to go live. However, there are no immediate plans to fully launch the eCedi, given the central bank's more pressing need to prioritize economic stabilization. https://www.bog.gov.gh/wp-content/uploads/2024/10/The-eCedi-Report-221024.pdf

Avalanche is launching a Visa Card that will allow cardholders to spend their digital assets directly from their wallets without the need to convert the assets into fiat currencies. The card will allow owners to complete payments using digital assets in any location or jurisdiction accepting Visa. It will come in the form of a self-custody wallet with a unique address per asset, in come in both physical (card) and virtual (app) form factors. The Avalanche Card will initially be available only to individuals that are residents of countries in Latin America and the Caribbean, except residents or citizens of Cuba, Nicaragua and Venezuela. Citizens of Russia, North Korea, Syria, Iran, along with the regions of Crimea, Luhansk and Donetsk are not eligible to sign up. https://x.com/AvalancheFDN/status/1848470963672711543

Medium published an English language summary by Norbert Gehrke of the October 17, 2024 meeting of the Bank of Japan's (BOJ's) CBDC Forum Plenary. There have been three such meetings, the last one being in January 2024. The BOJ is conducting proof-of-concept (PoC) experiments in stages to verify the technical feasibility of CBDC. Currently, the BOJ's experiments are focusing on performance, scalability, and privacy considerations. The system is designed to avoid handling personal information within the ledger management section, to ensure that user information and transaction details remain confidential.

Norges Bank Deputy Governor Pal Longva says that the central bank remains on track to finalize a recommendation in 2025 on whether it should introduce a central bank digital currency (CBDC). He said there's "no urgency" to accelerate the decision-making process, which is looking at both retail and wholesale versions, with increasing weight being put on the latter. Longva's remarks come less than a month before a November 15, 2024 deadline for a government task force to submit a report on ensuring safe and simple payments.

McKinsey published its 2024 Global Payments Report which documents the continuing displacement of cash and checks by instant payments, especially in developing markets with low credit and debit card penetration. Despite the underwhelming uptake of retail central bank digital currencies (CBDCs) where they have been launched or piloted, McKinsey foresees them setting the minimum base level of functionality, cost, and services that users can expect from a digital currency, providing an alternative to help keep the price of commercial offerings in check, and serving as an alternative to large private-sector stablecoins.

The European Banking Authority (EBA) published its final Guidelines on the orderly redemption of token holders in case of crisis of the issuer. The Guidelines, which are addressed to competent authorities designated under the Markets in Crypto-Assets Regulation (MiCAR), cover issuers of asset-referenced tokens (ARTs) and of e-money tokens (EMTs). The Guidelines specify the content of the redemption plan to be developed in going concern, including the liquidation strategies of the reserve of assets, the mapping of critical activities, the content of the redemption claims, the main steps of the redemption process, and the elements that may lead to the trigger of the plan by the competent authority.

Banco de Portugal published a paper that provides an overview of the underlying components of the decentralized finance (DeFi) ecosystem, as well as its associated risks from the perspective of a financial supervisory authority. While DeFi inherits the risks present in traditional finance, some of these risks could be amplified due to the lack of a clear regulatory framework and the intrinsic features of the DeFi space. Therefore, this paper also takes a closer look at the regulatory challenges involved, including the promise of self-regulation, and explores potential avenues for addressing these challenges without stifling the innovation that DeFi can foster.

The U.S. Federal Reserve Bank of Kansas City published a paper by Franklin Noll on "cash bill pay" services that allows consumers to make digital (e.g., bill) payments with cash at participating retailers. A recent Atlanta Fed survey found that American consumer preferences to pay with cash remain pervasive for various reasons, including the costs and other impediments involved in moving to digital payments, lack of needed identification, former credit or banking problems, and the desire for privacy. The article goes on to describe the two main cash bill pay service ("walk-up" and "barcode") consumer experiences, and the costs that may make the service expensive for some.

The Financial Stability Board (FSB) published a report on the potential financial stability implications of distributed ledger technology (DLT) based financial asset tokenization. The report opines that many of the purported benefits of tokenization have yet to be fully proven, may not be uniquely achievable through tokenisation, and may involve trade-offs that might negate the benefits. And several vulnerabilities are identified relating to liquidity and maturity mismatch; leverage; asset price and quality; interconnectedness; and operational fragilities. Tokenization could have implications for financial stability if the tokenised part of the financial system scales up significantly, if increased complexity and opacity of tokenisation projects lead to unpredictable outcomes in times of stress, and if identified vulnerabilities are not adequately addressed through oversight, regulation, supervision, and enforcement.

The Bank for International Settlements (BIS) published a Committee on Payments and Market Infrastructures (CPMI) report that sets out the concepts related to digital tokens and programmable platforms. Tokenization arrangements can change existing market structures by providing platform-based intermediation across the end-to-end life cycle of financial assets. While this could decrease transaction costs and enable innovative use cases, the potential of token arrangements to improve the safety and efficiency of the financial system will require sound governance and risk management. The risks typically associated with financial market infrastructures also apply to token arrangements, but they may materialise differently. Developments in tokenisation offer an opportunity for central banks to reflect on the role of central bank money in the digitalising financial system.

The Federal Reserve Bank of Minneapolis published a paper that advocates for a legal prohibition or capital tax on "bitcoin" to support governments' abilities to run permanent primary deficits. To be more accurate, the paper uses bitcoin as a metaphor for risk-free private-sector securities that are in fixed supply and that are not a claim to any real resources or "useless pieces of paper". The analysis seems to be based on the idea that risk averse consumers are willing to hold government securities and bitcoin even when the real return on these securities is very low. The virtually impenetrable analysis suggests that the existence of "bitcoin" forces the government maintain a balanced budget, which some might view as a good thing.

The European Central Bank's (ECB's) Ulrich Bindseil and Jürgen Schaaf published a paper that argues that, if the price of bitcoin continues to rise, there will be a redistribution of wealth to early bitcoin adopters at the expense of consumption of the rest of society, assuming that bitcoin does not increase the productive potential of the economy. In a theoretical scenario of ever-rising Bitcoin prices, this wealth shift will be a lasting legacy, with early adopters' luxury consumption financed by the diminished consumption of those who missed out. Moreover, the corresponding impoverishment of the rest of society, will endanger cohesion, stability and ultimately democracy.

The Financial Stability Board (FSB) published (i) a consolidated progress report for 2024 reporting on a broad range of actions being progressed as part of the G20 Roadmap for Enhancing Cross-Border Payments; (ii) a progress report on the implementation of the Legal Entity Identifier (LEI); and (iii) an annual progress report on meeting the improved user experience targets for cross-border payments. While more than half of the planned actions set out by the G20 have been completed, the FSB's key performance indicators which measure key aspects of the user experience in using payments services, suggest that further efforts are needed. The FSB emphasizes the importance of intensified effort and commitment from a range of stakeholders, including by domestic regulatory/oversight authorities and payments services providers.

The U.S. Securities and Exchange Commission (SEC) has submitted a Civil Appeal Pre-Argument Statement ("Form C") appealing the August 7, 2024 final judgment of Judge Analisa Torres of the US District Court for the Southern District of New York, enjoining Ripple from further violations of Section 5 of the Securities Act of 1933 and imposing a $125 million civil penalty. The new SEC action will drag the whole legal process that started in 2020 out at least until July 2025. https://cointelegraph.com/news/sec-ripple-appeal-no-challenge-xrp-not-a-security

The OECD published a report that presents a mapping exercise to explore the different approaches to digital identity of G7 members. It draws out significant commonalities, as well as differences. In doing so, this document is intended to provide a resource for policymakers and stakeholders looking to understand the current state of digital identity policy and governance across the G7. This document may also serve as a foundation for discussions and planning around more interoperable digital identity systems.

The IMF published a chapter of the October 2024 edition of the Global Financial Stability Report that assesses recent developments in AI and Generative AI and their implications for capital markets, using new analytical work and results from a global outreach to market participants and regulators. Evidence from labor markets and patent filings suggests that adoption of AI in capital markets is likely to increase significantly in the near future, and AI could cause large changes in market structure through the greater and more powerful use of algorithmic trading and novel trading and investment strategies. AI may reduce some financial stability risks by enabling superior risk management, deepening market liquidity, and improving market monitoring by both participants and regulators. At the same time, new risks may arise, including increased market speed and volatility under stress, more opacity and monitoring challenges of non-bank financial institutions, increased operational risks as a result of reliance on a few key third-party AI-service providers, and increased cyber and market manipulation risks. Many of these risks are addressed by existing regulatory frameworks, but important new and unforeseen developments may arise.